The trading of products currently takes place over various mechanisms including telephone, email, real-time order/last look matching engines, periodic auction systems, midpoint matching systems, request for quote systems, request for stream systems, instant message chat, etc. Different trading mechanisms are preferred in different asset classes as a function of the liquidity of the product that is traded and the market structure in place.
Typically, markets with very liquid and well defined products (i.e. stocks, futures) use order matching engines. However, in certain liquid markets, other mechanisms achieve equal success. Such is the case in the very liquid foreign exchange market (FX), as well the US Government Bond market. In these two markets, there are actually two very different yet equally successful mechanisms.
For example: in the U.S. Treasury market both BrokerTec and ESpeed are successful with order driven matching engines. These markets are primarily used by Banks and large proprietary market making firms. Of note is that many large participants in the US Treasury market (e.g., large buy side investment firms, corporates, sovereign wealth funds) generally choose not to participate in Brokertec and Espeed. In that same U.S. Treasury market, TradeWeb and Bloomberg Tradebook provide last look Request For quote/Steam (RFS) trading systems that have been very successful in serving the remainder of the market. On these RFS systems, the market-makers are the same banks that participate on BrokerTec and ESpeed. The takers of liquidity are the buy-side firms (e.g., large buy-side investment firms, corporates, sovereign wealth funds, etc.)
In the global foreign exchange market an analogous situation exists. EBS and Reuters (and a few smaller players) operate real-time order matching systems. The customers on these platforms are generally the very same firms that operate as market makers in the US Treasury market (e.g., Banks and proprietary market-making firms). Vendors such as FXA11, Currenex, Hotspot, FastMatch operate order-last look matching engines. The market-makers on these platforms are the same firms that participate in EBS and Reuters. The market-takers of liquidity are active buy-side firms (retail brokers, hedge funds, corporates, etc.).
Professional, high volume market-makers trade with each other and therefore offset risk on BrokerTec/ESpeed (US Treasuries) and EBS/Reuters (FX). Consequently, this is where real-time price discovery occurs. Buy-side firms trade on TradeWeb/Bloomberg (Treasuries), FXA11, Currenex, Hotspot, FastMatch which is where distribution occurs. The fact that smaller, buy-side players do not participate in the core markets does NOT automatically put those participants at a disadvantage. In fact, the prices on the buy-side platforms are almost always superior (i.e., there is a smaller difference between the bid and offer price) to the prices in the core markets. This is true in both FX and US Treasury markets. This is somewhat counter-intuitive. Instinctively, one would assume that the core market should have the best price because wholesale prices are lower than retail prices; therefore, the same should be true in financial markets. However, such an assumption is false.
This differentiation in pricing quality between core and distribution markets is in fact quite rational. Market-making has become an extremely sophisticated and competitive specialization. Core markets are dominated by professional market-makers. Generally, these professional market-makers prefer to reduce risk with customer flow rather than to trade with each other. They will only take another market-maker price as a last resort. This is because they collect spread (the difference between bid and offer price) on customer trades and they pay spread (they sell at a lower price and buy at a higher price) when they take from other market-makers.
Furthermore, the sophisticated firms trade on core markets for good reasons. They may know there is a large client order arriving, or they know that the correlated futures exchange price for a particular bond or FX has changed in price. Trades like these tend to result in almost instant losses for their counter-parties. This is referred to as “toxic” trade flow and is precisely what all market-makers try to avoid. Since all traders can match with each other on these order markets it is difficult to avoid toxic flow. Therefore, these players trade on these core markets because it is the only place they can send this type of flow.
On the distribution ECNs, the market-taker clients tend to have less real-time information. The timing of their trades tends not to be correlated with rapid changes in the market. This allows the market-makers to avoid toxic flow and to collect spread for their trade flow and potentially profit.
Core market matching systems aim to provide a level playing field between all participants. As such there is usually no significant difference in the workflow for market-makers and market-takers. In contrast, the distribution ECN's goal is to provide the best quality of pricing to their customers. To accomplish this, they provide market-makers with specialized workflows. There are several key features that are typically provided:                They provide the market-maker with a unique client identifier number (or the actual customer name in some cases).        They allow market-makers to choose which prices, if any, they want to send to a given client. This allows the market-maker to identify toxic clients and to remove them or provide them with worse pricing.        They provide the market maker with a last look on each trade so that the market-maker can determine if the price is no longer valid.        
These features provide significant advantages to the market-maker over the market-taker. While this may seem unfair, market forces come into play to level the playing field. There is usually a great deal of competition between market-makers. Therefore, to win business, market-makers must narrow their bid/offer spreads. This results in a better price available to each market-taker client. The outcome is that clients with unsophisticated execution receive a superior pricing. Firms with more sophisticated execution receive inferior pricing.
One downside of this approach is lack of transparency. In all distribution ECNs, the relationship between market-makers and market-takers is controlled by an individual or individuals at the ECN. This individual can decide who trades with whom, which market-makers are allowed on the platform, how long they can hold a last look, if the same rules apply to all market-makers, etc. Because these controls are opaque and to the participants, this approach is prone to abuse. This is a potential issue for market regulators as well as a barrier to some clients who demand transparency.
There exists a need for greater transparency in the trading of financial products on computer networks. There exists a need for greater rule transparency in ECNs.
There exists a need to allow market participants to enter the trading market with whatever level of anonymity they choose for each and every trade.
There exists a need for a system and method which provides a market workflow with full transparency and a level playing field which allows market-taker clients to benefit from improved bid/offer spreads via directed pricing in an anonymous environment.
There exists a need for a transparent marketplace which eliminates human intervention at the ECN distribution level. There exists the need for a system that allows traders to analyze the trading market, and have the ability, either anonymously or not, to select which market participants they are willing to trade with. Such a market system would allow both market-makers and market-takers to directly determine their trading counter-parties and not rely on the abuse-prone determination by individuals at the ECN.
There also exists a need for a system and method that supports this fully anonymous trading, thus allowing the consolidation of the “Core Markets” (where price discovery happens) and the “ECN Distribution” markets (where distribution occurs). By consolidating price discovery and distribution, and by providing full transparency of the trading rules, greater efficiencies can be captured and customers can be sure they are being treated fairly.